Saturday, October 3, 2015

Paying For Solar: SolarCity's GigaFactory (SCTY)

This trip down memory lane was prompted by yesterday's SCTY announcement (link below) of new panels that hit 22.04% conversion efficiencies.

The company is in a race against its cash burn rate and in this race the lawyers and lobbyists are as important as the engineers and salespeople. And finance guys.

From MIT's Technology Review, August 2015:

Paying for Solar PowerSolarCity’s massive new manufacturing plant in Buffalo, New York, reflects a booming demand for solar power. Is it sustainable?

The rail cars that once carried iron ore around
Republic Steel’s sprawling plant at the edge of downtown Buffalo, New
York, were plowed under when the steel company abandoned the location in
1984. They were recently discovered when excavation began for the
so-called gigafactory to be operated by SolarCity, the country’s leading
supplier of solar panels. Now the rusted cars and a scattering of other
relics from the days of Republic Steel greet visitors to the
construction site, a reminder of the city’s past manufacturing might and
a testament to the dream that North America’s largest solar-panel
manufacturing facility can help revive it.

Buffalo is attempting an economic comeback fueled by the state’s
Buffalo Billion initiative, a multi-year redevelopment plan spearheaded
by Governor Andrew Cuomo. Included in the funding is support for a new
genomic research center and an information technology center, but at the
heart of the city’s ambitions is the solar factory, which New York is
spending $750 million to build and equip. SolarCity, based in Silicon
Valley, will lease it, essentially for free, and has committed to
spending $5 billion on its Buffalo operations over the next decade. For
Buffalo, it’s an attempt to reimagine its future around solar
manufacturing. For SolarCity, it will solidify its position as one of
the country’s most aggressive and fastest-growing solar companies.

The plan to build the massive manufacturing facility comes at a time
when demand for solar power is booming in the United States. In 2008,
the nation had about 1.1 gigawatts of photovoltaic power, the dominant
type of solar energy; by the end of 2014 it had 18.3 gigawatts. Last
year, homeowners, businesses, and energy companies added about 6.2
gigawatts, and they are expected to install another eight gigawatts this
year. Much of that is in California, but solar power is taking hold in
other states, boosted by a mix of federal tax credits and state and
local incentives. Roughly a third of the electricity generation capacity
added last year in the United States was solar, second only to
natural-gas plants. (Even so, solar power still provides less than 1
percent of the country’s electricity.)

SolarCity has played a large part in the rapid expansion. By offering
innovative financing schemes, it has spurred strong demand for rooftop
panels on homes, the fastest-growing sector of the solar market. Instead
of buying the expensive solar panels and paying for their installation,
homeowners participating in one of SolarCity’s offerings can lease the
system for 20 years, paying a monthly fee. Because it owns the panels,
SolarCity benefits from the generous 30 percent federal investment tax
credit for solar power; the homeowner is credited at retail electricity
rates for any surplus power fed back to the grid. SolarCity is still
unprofitable, but its revenue doubled from 2012 to 2014 as its leasing
program proved attractive for homeowners—especially in locations with
high electricity rates and lots of sunshine, such as California. The
company expects to install enough panels this year to produce a gigawatt
of power.

Not coincidentally, a gigawatt will be the capacity of the Buffalo
factory when it is fully up and running, which is scheduled for the
beginning of 2017. Until now, the company’s business has been built
around marketing, financing, and installing solar systems. Instead of
producing solar panels, it buys them, mostly from Chinese manufacturers.
The Buffalo factory changes all that. “Our aspiration is to build many
more of these factories over time,” says Peter Rive, the chief
technology officer, who founded SolarCity with his brother nine years
ago (their cousin Elon Musk is the company’s chairman). And though Rive
says the company doesn’t want to “take its eye off the ball” in getting
the Buffalo plant built and operating, he adds that shortly after that’s
accomplished, “we want to create the largest solar facility in the
world, never mind the Western Hemisphere.” Indeed, SolarCity stated
earlier that its plan is to add “one or more significantly larger
plants” with annual production capacity an order of magnitude greater
than that of the Buffalo facility.

The company will make a new type of photovoltaic technology in
Buffalo. The solar cells use crystalline silicon—the material used in
conventional cells—with a thin film of another form of silicon and a
layer of a semiconductor oxide. The hybrid solar-cell design, which
SolarCity got when it bought a small company called Silevo in 2014, is
designed to be more efficient than standard silicon cells in converting
sunlight to electricity, as well as relatively cheap to make. But while
SolarCity operates a 32-megawatt plant in Hangzhou, China, that Silevo
built to make the solar cells, quickly scaling up those operations to
the far larger plant in Buffalo will be an engineering feat.
Even if all goes well, the gigafactory could be facing a dramatically
different solar-power market. At the end of 2016, the federal tax
credit for solar power is due to drop from 30 percent to 10 percent for
businesses and to disappear altogether for consumers who buy their own
solar panels. By making residential solar power less affordable, the
change could be devastating to the industry. And it will come just as
the Buffalo factory is ramping up its manufacturing capacity.

True costs
Fears about what will happen when the tax breaks decrease are fueled
by an unfortunate reality: in most locations and under most conditions,
unsubsidized solar power is still far too expensive to compete with
other sources of electricity. And rooftop solar is especially expensive.
Subsidies and other government incentives are the reason the solar
market is booming. If technologies were chosen purely on the basis of
what it costs to produce power, “there isn’t a market for residential
solar,” says Severin Borenstein, a professor at the Haas School of
Business at the University of California, Berkeley, and an expert on
electricity economics. Without government incentives for clean energy
like solar, he says, “natural gas wipes everything else away.”...MUCH MORE